The current exchange rate between the Japanese yen and the U.S. dollar is 115 yen per dollar. At current prices, a basket of goods that costs $100 to produce in the U.S. would cost ¥10,500 to produce in Japan. Over the coming year, the inflation rate in Japan is expected to be -1%, while the inflation rate in the U.S. is predicted to be 2%. The speed of convergence in the real exchange rate to PPP is 50% per year.
1-What do you predict the real exchange rate will be one year from now?
2-What do you predict the yen per dollar nominal exchange rate will be in one year?